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Analysis: The biggest drawback to the Dynamic Canadian Bond Fund is it’s relatively high MER. The MER is 1.54%, yet when we compare it to our other favourite bond funds such as PH&N Bond which carries an MER of 0.61% for the direct sold units and 1.17% for advisor sold units, Beutel Goodman Income Fund carries an MER of 0.88% and TD Canadian Bond comes in at 1.11% for units purchased directly or 1.37% for units sold through an advisor. Despite this higher fee hurdle, this fund does a pretty decent job, offering decent relative performance and a level of volatility that is below both the DEX Bond Universe Index and the category average.
The manager uses a disciplined approach to managing risk, and will actively adjust the portfolio in response to the current environment. As of November 30, the portfolio was 39% in provincial bonds, 35% in corporate and 13% in Government of Canada bonds.
In response to the challenging fixed income environment the managers will be focusing on higher quality, senior debt issues from both governments and corporations. Given the concern regarding the financial system, the managers will be maintaining a zero weight to bonds issued by companies in the financial sector for the near term. They will also continue to employ their active strategy for managing interest rate and credit risk, and where possible, will use futures and option strategies to preserve invested capital. The managers will continue to focus on managing volatility and will look to increase the yield within the portfolio without substantially increasing the total risk to the fund.
While we feel that there are better bond fund choices available to investors, at the moment, this is in our opinion, the best fixed income choice offered by the traditional mutual fund companies. However for investors in fee based accounts or who are investing on their own, they should likely focus elsewhere for example PH&N, Beutel Goodman or TD.